Host: Tony Koninova bought an interesting business ghostwriting and editing for people who want to self publish a book. Clients include authors who want to be the next J.K. rowling to older folks recording their lives in the form of a memoir to convicted criminals in prison. It was a fully remote business and a small one. But Toni saw this as an opportunity to take the skills she's developed in Silicon Valley. She worked at Google when she bought the business and and make an underperforming business grow. Buying small also meant less risk, which was attractive to Tony. As you'll hear, this was not an all in acquisition. At 500k it was certainly big enough to matter, but not so big that it would mean financial ruin if it didn't work out. This is not the full time searcher expecting to go full time in their acquisition and I think you'll appreciate hearing this somewhat unusual approach. Enjoy my conversation with Tony Koninova of Right My Wrongs. Welcome to Acquiring Minds, a podcast about buying businesses. My name is Will Smith. Acquiring an existing business is an awesome opportunity for many entrepreneurs and on this podcast I talk to the people who do it. August Felker is a two time successful searcher, first with a traditional search fund. The second time around he did a self funded search. Today August runs Oberly Risk Strategies, an insurance firm with a dedicated practice group for searchers and acquisition entrepreneurs like you. If you've got a business under loi, Oberle will provide complimentary due diligence on that business's insurance and benefits program. A great no risk way to get to know August and team. They love helping searchers. They've worked with hundreds. Oberle is a specialty insurance brokerage for searchers by a former searcher. Check out oberle-risk.com O B E R L E- risk.com, link in the show notes. Tony Koninova, thank you for joining me today on Acquiring Minds.

Guest: Thanks for having me Tony.

Host: We met at a meetup in San Francisco last year. At the time I believe you were nursing the wounds of an acquisition that you had attempted but that the deal had fallen apart. We'll get a brief version of that story, but fast forward and you now have successfully acquired a different business. It's a service business for people who want to self publish a book. So really interesting business and we're going to learn all about that. But you were at Google when you decided to start looking to buy a business. So tell us how somebody doing well for herself in Silicon Valley decides to go out and buy a business.

Guest: Yeah I've been at Google for nine years and only the last five years were in California. So basically when I just came to California, I worked at Google's Incubator Area 120. That's basically like a Y combinator inside Google. At least it was positioned that way that time and where employees work on their own ideas. And basically when I was there I worked on a very high tech machine learning project that was my idea, but I myself am not very technical. So basically that product that I worked on in the incubator later joined another area of Google that was more chill and it kind of became an internal tool. But that was kind of my first glance into the startup world, into the real Bay Area mentality. And I felt like I, I'm actually quite interested in that. Doing a startup, you're never your own boss. Actually it wasn't even a real startup. But yeah, I felt like when you have investors and basically whatever you work on, you're never your own boss, but you're still probably at an interesting place when, when you're the only investor. So that's probably how I initially got interested in the idea. And then at that point I already read Walker Dybal's book Buy Then Build and I was interested in this comparison of outsmarting the startup game. Even though I don't really agree that you can compare a high tech, high growth startup with like something that's more of a lifestyle business. But it was interesting to see that you can actually acquire a company and have this medium risk, medium reward thing for yourself. It's very anti Silicon Valley, I think.

[5:13] Host: Yeah, well, but it sounds like you actually are, but you like, are you saying that you like the Silicon Valley culture or that you reject and don't like the Silicon Valley culture? Or you like it, but you also like an alternative? So you like it all?

Guest: Yeah, I like it all.

Host: Okay. It also sounds like one of the things, I mean you like the idea of a high growth, high risk rocket ship startup, but one of the features of that that you don't like is that you are not your own boss. So classically entrepreneurship means being your own boss means autonomy, means freedom. And in fact in Silicon Valley startup, that's often not really the case. Be it your investors or whomever, there are many, many stakeholders in these really high risk, these high risk ventures. So in the kind of the buy then build model, you really could be your own king or queen and that it was something that was important to you and appealed to you.

[6:15] Guest: Yes, I think the freedom part is the important word here. So there is never real freedom, but I think freedom is my key value.

Host: Okay, now you said that this was all this decision of yours was after you read Buy then Build. But how did you. Were you introduced to Buy Then Build the book?

Guest: Initially, I was following one Russian blogger who writes about investing in startups, et cetera. And yeah, surprisingly, I first saw some Facebook post from that Russian blogger, and then I saw another Russian entrepreneur also writing a review of that. And yeah, and maybe that was when I read the book already, but at that point, the book was really cheap on Kindle now Kindle. And yeah, and I just. I think it was something like $1 or $2 book on Kindle. And yeah, I just went and, yeah, bought it and read it.

Host: And these Russian bloggers are talking about the Buy Then Build model and Buy then build the book. Are they Russians based in the US Or Russians based in Russia? I mean, is this. Is Search something that's happening in Russia as well?

Guest: So you cannot really do the SBA loan in Russia, obviously, but it was just like one of the many posts and it was a Russian blogger based in Russia. Yes.

Host: Okay. And so is there. Do you have any more visibility, I'm just curious. Any more visibility into whether buying small businesses, Is this a trend in Russia as well?

Guest: I think there are different, like, very different risks and rewards there. Because here you can buy something, leverage someone else's capital or. And then you can also sell. I think in Russia, it would be like, Russia is not a place where lawyers have as much power as here. Yeah, you can just. I would say I would be very much afraid to buy something in Russia.

Host: Okay.

Guest: Yeah.

Host: Okay. All right. So you have read the book. You like the idea, you're drawn to freedom.

Guest: Actually, initially I didn't like the idea that much. I thought, like, oh, this is just about those boring businesses that are offline businesses, like some factories or retail. Like, I wouldn't really do that stuff. And then I kind of forgot about the book for a year or two.

Host: And then what happened a year or two later?

Guest: And then the pandemic started, so I started spending more time online. And I saw that there was a lot of reminders, so I think I signed up for some email lists and there were all these reminders that I didn't finish some course with Bind and Build or something like that. And yeah, and then I saw that they were recruiting for the acquisition lab. And yeah, I think I'm just perceptive to marketing. And I think, yeah, this marketing just influenced Me and I signed up for the acquisition lab.

[9:32] Host: So you went through Walker Deibel's acquisition lab?

Guest: Yes.

Host: And during that process, did quote, unquote, boring businesses or traditional businesses become more interesting to you? Because, in fact, the two businesses that you looked at that we'll talk about, neither of those were traditional boring businesses. They were both online kind of digital businesses. So tell me about your thinking. Do you still find the manufacturing and that stuff less appealing or did it eventually become appealing?

Guest: So when I went through the acquisition lab, my target statement was still the location independent businesses, and it mostly means online. But also I saw that there were other people looking for online businesses. So, yeah, I think it's also about freedom that, like, I wouldn't, like, go somewhere in Texas to just buy some factory because then I would need to spend the next five or ten years at that factory and.

Host: Okay, so actually it's great that you went through the lab and had your target statement, because you can tell me with some real specificity what that target statement looked like. How did you describe yourself and the type of business that you were looking for?

Guest: Yeah, so initially I was looking more for software as a service business, but the target statement was basically a location independent business eligible for an SBA loan. That was it. And that's already pretty rare.

Host: Did you have some price or valuation constraints around that ebitda?

Guest: Yeah, I wanted it to be profitable, and basically for it to be eligible for the SBA loan, it needs to be profitable for the last three years at least, and ideally having a growth, like moderate growth trajectory. So I was kind of relying on SBA to kind of protect me from taking too many risks.

Host: Sure, but in terms of size, I mean, profitable, there's a wide range there that could be earning $1 a year or earning a million dollars a year. How did you filter that down more, narrow that down?

[12:01] Guest: Yeah, I think initially I was looking for something with a profit like around 400 to 800k. So. But then. But considering that, like half of it will go into paying out the SBA loan, and then when I started looking around, basically I thought that the actual profit number is not as important. I think in the end I started looking for even 50k profits because I realized that I don't have to be on it full time if it is a smaller deal and there is also less stress, if there is less loans, less liabilities, basically.

Host: Well, okay, so help me understand, because buying a business that's generating $50,000 a year is very different than buying one that's generating 800 both in terms of, I mean in a variety of ways it's very different. And then also full time or not. So what was your vision? Did you imagine buying this business and becoming an owner operator like a searcher would? Or was it more like a side thing? You were going to do it on the side or and keep your day job in Silicon Valley? Or did it just depend. It depended on the type of business that you bought and that would kind of dictate what you did. So paint a picture for me, what did you envision?

Guest: Yeah, I think I was kind of leaning towards these smaller businesses because they still could have a significant growth potential. And yeah, I think TLDR is that it would depend on the business. I never thought that like, oh, that will really be my career to buy a business and then spend 10 years doing just this one business. I really like the idea that you can roll up some smaller businesses, etc. And yeah, I guess I became an optimist while I like while living in Silicon Valley. So I just thought like, okay, I'll just get something to kind of learn how it works and then maybe I'll buy another business or I'll see. But if it is profitable, then probably it wouldn't go completely to ashes.

Host: Okay, okay, so this is helpful. So you're imagining buying maybe not too risky, maybe not too big a business, something that if it's profitable, it's probably not going to go to zero, but it's not going to be.

Guest: Which turned out to be not true.

Host: Okay, well we'll get into that. But something that was probably going to be something on the side, maybe you dipped in and out of it, maybe you gave it full time for a month here or there, but it was really not going to be your main, main thing. You were still going to basically stick to your Silicon Valley career working for at the time, Google, maybe startups later or maybe other big tech companies. And it was almost like an experiment. It wasn't a huge career pivot, it was more of kind of like a financial experiment. Is that a fair characterization?

[15:20] Guest: Yes. And there was also an option of taking something that's like nonvery techy and maybe turn it into a startup later, as per the book. And I think there is still this option. But yeah, I just wanted to get something that wouldn't limit me too much, that still has this option of doing it on the side or turning it into a big thing and just see how it goes.

Host: Okay. Optionality, freedom. It's all about. It's all about, huh? Okay, so you start looking and so tell us about this B2B software business that you got close on but ultimately didn't get. Tell us a quick version of that story. Wouldn't it be great to have experts at your back when buying a business? People to help you polish up your pitch and processes as you go to market as a searcher, then help you evaluate opportunities once you get some deal flow. Such experts exist buy side advisors, but they'll cost you to the tune of tens of thousands, even hundreds of thousands of dollars. But another option exists, the Acquisition Lab. The lab is a do it with you buy side advisory service, not do it for you. Founded by Walker Deibel, author of Buy then Build, the lab represents Walker's vision for what is most needed to make a searcher successful and available at an accessible price. It's cohort based and you will come out the other side of your cohort prepared to go to market as a savvy searcher with a tight message and process. So brokers take you seriously. Pre approved for a loan and with an entire community at your disposal to help you along the journey to buying a business. To learn more, check out acquisition lab.com link in the show notes.

Guest: Yeah, so basically right after I graduated from the Acquisition Lab, I just did some search through brokers on the popular websites and I found a business that fit my initial target criteria pretty fast. In maybe four weeks after I graduated from the Acquisition Lab and it was

Host: a

Guest: software company based on the east coast. The owner was retiring and they were growing somewhere like 20 to 30% a year for the last few years. The company was in existence for 15 years and yeah, there were some things that could be improved. So it wasn't fully remote, but with the pandemic it actually became kind of eligible for the being remote only. And I even flew to the east coast and met the owner and basically I had the letter of intent, it was accepted, made most of the due diligence. And then after that visit like maybe a week later, the owner sends me an email that I decided not to sell my company to you. And then I tried to call him, the broker calls him, the principal of the broker company calls him and he just doesn't pick up the phone and doesn't answer emails and wow.

[18:54] Host: Yeah, total ghosted. Well, he didn't ghost you because he sent you a note. But then after that he wouldn't. Totally unresponsive. That must have been incredibly frustrating. How were you like really emotionally invested? Were you getting pretty excited about this?

Guest: No. Maybe like actually like while doing now, I'm thinking that I dodged the bullet because I was way less comfortable with the industry than with my current business. It was so like when I actually met the guy and like had a tour of the office, etc. I already understood that it would be really hard for me to like do exactly what he does. And it's just also a very, very complex technical space. So the owner was not technical. That's why I like the business initially. But I didn't have a clear vision on how to grow it other than oh, it was growing before and it would be growing further and maybe I could cut some cost because the sales operation is very inefficient, etc. So actually it was a similar type opportunity with the business that I actually acquired now. But at that point I think I was just kind of trying to get it closed and I was lucky that he also got concerns. I don't know what his concerns were, but yeah, I think if I acquired that business I would probably be more trouble now than I am.

Host: Than you are, which you are in trouble. Okay, we're still going to get there. What was it, what industry was this, this SaaS business in and what size was it in terms of revenue and ebitda?

Guest: Yeah, so it was the price that I offered and that he accepted was about 800k. I think the, the seller discretionary earnings were somewhere below 200k. Somewhere like 180 or something. Yeah.

[21:10] Host: Okay, okay. And what was the industry? Just curious.

Guest: I think there are very few companies that space it. But yeah, it was basically a very unsexy software. B2B software. Yeah.

Host: Okay, okay. So you don't feel comfortable saying because it might give away the identity of the company.

Guest: Yes, but it was basically it was a growing market but very technical and yeah, it was kind of a niche market.

Host: Okay, okay, so that doesn't work out then how do you feel you're still committed to the project of buying a business or are you just kind of. Yeah, where's your headspace? After he sends you that email and says no thank you.

Guest: I didn't expect that. But I already heard that many searchers usually go through two or three deals that fell apart. So I just kept looking, but this time I was kind of slower. So I didn't find anything that was meeting my criteria for a few months. And I was also kind of negligent because I still had my full time job at Google. So yeah, I just kept looking through websites and modifying my criteria and then basically I Think the current opportunity. It also kind of came through my inbox. I requested the information and then I didn't even respond on the last email or on the request for NDA. And then the broker called me and then I kind of paid attention to it and thought, okay, but I think I only had maybe two or three calls with some other companies between, between the end of the previous deal and before I made the letter of intent to this company. So that was maybe like three months when I only did three calls and didn't even extend the letter of intent.

Host: And just curious, what websites did you use?

Guest: So the usual ones. So the Biz by Sell, the Flippa Microacquire, the Quiet Light website, and I also signed up for some of the broker websites who were always publishing on these main websites.

Host: Now, so tell us, yeah, so tell us about this business that we know that you ended up acquiring. But take us back to that moment where you've asked for the information, but you're not even that interested. You're not really paying attention. The broker follows up with you, you start paying attention. And so what do you find? What, what is this business and what do you like about it?

[24:21] Guest: Yeah, so actually, when I looked through the information memorandum, the business was positioned as a publishing house. And I thought, okay, how come, like, everybody knows that the publishing industry is dying, but why is this business growing by like 30, 40% a year for. Again, like, it grows. And yeah, so basically then I scheduled the call with the owner and learned that it is actually more of an agency that helps authors to edit their book, get a cover design, publish on Amazon, Apple Books, et cetera. And if you look at their website, you would really wonder, how is it possible that this business makes money at all? Because they. Yeah, so, I mean, now the website looks a little bit different, but at that point I could see that, like, okay, the website, it's absolutely invisible on mobile. There are just some pictures that are illegible. The design was really something made in like 20 years ago or something. But it made sense when I learned that most of the audience or the customers are older people who write memoirs and they are not really familiar with how to publish on Amazon or do things like that. And that's why they actually need a website where you call the owner, the owner signs you up and sends you an invoice or takes your credit card, and then you actually have someone to help you write your memoirs. So there was a number of.

Host: Yeah, yeah, so let me just jump in to be very clear about what it does Essentially it's key demographic is older people who want to write their own personal memoir, but not famous people, just kind of anybody, any consumer. And it is sort of an agency in that they'll provide all of the service of allowing you to self publish this on the major platforms, namely Amazon. Do they also do. Does your now business. Does it also do ghostwriting?

Guest: Yes. So basically the two main lines of business were editing and ghostwriting and basically the whole publishing part was kind of secondary. So yeah, it initially started as an editing company and the website was rightmywrongsediting.com so it was like 100% editing initially. And the owner was also an author, he wrote some fiction and basically there was a founder story in startups that he couldn't find an editor who would really know what to do with their book. And then he found one and then he actually founded a company that provided editing services with proper customer service, proper attention to detail and quality, et cetera. But it was interesting that it was all about memoirs and fiction. Not really people who want to write an Amazon bestseller or low content books, et cetera. That's how you normally make money on Amazon.

[27:53] Host: Sorry, you normally make money on Amazon doing what kinds of books?

Guest: Nonfiction.

Host: Nonfiction. Okay. So these are kind of mostly vanity projects. I mean they're people writing their kind of life history and ghostwriting. So how much of the business is ghostwriting? Because I imagine that's a much heavier lift than editing. I mean that's a lot more work to be doing the writing than the editing. So is that where the majority of revenue comes?

Guest: No, previously last year it was less than 30% of the revenue.

Host: And is that because most of the people who come to the site already have a book written at that point? Yes, it was like, okay, okay. But when you do do a ghost writing, you're. When right my wrongs, your business does ghostwriting a book, that's a, that's a large expense, I imagine. I mean, paying a ghostwriter to write a memoir, I imagine that's a pretty expensive. I mean, how much does something like that cost?

Guest: Yeah, so it starts with about 15k for a ghostwriting project.

Host: 15k?

Guest: Yes. And the editing projects are more like 3k, 5k on average.

Host: And so how many memoirs are being ghostwritten by Right my wrongs every year? Like how many of those ghostwriting gigs do you guys sell? I'm curious.

Guest: So it's very unstable. So I don't remember how many were there last year in terms of the numbers, but when I acquired the company, there Were only four ghostwriting projects in progress, and some of them are still not finished, even though they were ordered in 2021.

Host: Okay, okay. So returning to your discovery of this business. So tell us more about. So what you liked about it was. Was growing. It was. Even though the website was terrible, there was a method to the madness. It was targeting a demographic that, you know, wants to make a big order like this over the phone anyway. But you saw that as an opportunity to, I guess, you know, a business that could be modernized. What else did you like about it?

[30:10] Guest: That it wasn't just growing, but also its market was growing. So, like, the publishing industry is not growing, but self publishing, inside publishing is still growing. So I like that it was growing and that the market was growing. And these were the two main factors that attracted me to this and the previous opportunity. And I also liked that there was a clear area for improvement, not only in terms of modernizing the websites, but also they only did Google Ads as an acquisition channel. So if you just add SEO, that would be already a huge thing. And then also I like that the owner did sales. And when I started in Google, I worked in sales and I knew how to basically scale sales operations. So I thought, okay, yeah, I was a good sales coach, so I could actually train a new salesperson, even if not everything could be replicated. But my main bet was that sales is not magic. And even if the owner was a great person and a great salesperson, yeah, maybe the conversion will go down, but he could be replaced. And then it can become a passive business. So it kind of opens more options.

Host: Sure. And the founder owner doing sales, was that primarily what he was doing, or was there other stuff that he was doing that also would need to be outsourced?

Guest: So initially it was presented as he did sales about 20 hours per week. But in fact, there was also his wife who did all the accounting. And he didn't just do proactive sales, but he was also doing invoice collection and things like that that I didn't fully quantify when I did the due diligence. But yeah, he was actually doing kind of sales and account management

Host: and give us some numbers behind the business. How big was it in terms of revenue, EBITDA and so on?

Guest: Yeah, so last year it was 600k in revenue and about 200k in seller discretionary earnings. The year before that it was 400k in revenue and somewhere like 125 maybe in seller discretionary earnings. So basically, it was growing in, like, profit and revenues every year for the last five years and it was like significant growth.

[33:05] Host: Well, if it last year did 200 and the year before that it did 125 in cash flow. And that's year four of the five year trajectory. Like it must have what year three, two and one must have been low. Pretty low, pretty low profit numbers.

Guest: So when the SBA did. No, it's now year five, I think, or maybe six. So actually when SBA did their own valuations, like this average revenue that they used for the valuation was somewhere like 150k profit per year.

Host: And so that would have been approximately like the average of the profit for the last three years.

Guest: Yes.

Host: So then the valuation was what, what was the acquisition price?

Guest: So that offer came with no price. So like basically it was kind of bidding. I offered 500k and that's what was accepted.

Host: Okay, so you paid a little bit over 3x according to an SDE of the previous three years.

Guest: Yeah, SBA did their valuation after I made the offer, but I actually just did my own calculation based on the last year profit and also kind of pre qualified it for SBA. But yeah, for me it was more like 2.5 on 200k rather than 3 plus on 150. But considering the growth of the business, that was still a good deal.

Host: Yeah, Yeah. I mean, 2.5x is generally a low multiple. Were you surprised to have it be accepted?

Guest: No, because as I said, the owner was a great salesperson and I knew that I should divide everything he says by two.

Host: Okay, so, and I'm just curious, like this is a pretty small deal for an SBA loan. Did you have a hard time financing it or finding a lender?

Guest: No. And for me it helped that I already went through like one deal with First Business bank, the one that failed, but they already did some underwriting on me at that point and they said, okay, you have a stable job outside of this really clear financials, It's a really good profile. So if you want to reach out again, we'll happy to fund your next acquisition. And basically next time I just went to them again and basically it was part of the narrative that I have a job at Google and I don't need a business to like be that profitable. It basically needs to pay back the loan, but like I don't need to make an allowance for my own salary, etc.

[36:14] Host: So that's really interesting. So in other words, they were kind of expecting you, at least for the purposes of underwriting this loan, expecting that this would not be your full time Thing that you would continue to have a very full salary coming from a tech company from Google. And they were really kind of factoring that income stream into their overall assessment of your deal. So you. And so the way you positioned yourself to them is, no, this would be, this is a business acquisition that's going to be on the side. It's not going to be something that I give myself full time to or that I quit my job to pursue. Yes, okay.

Guest: And they even told me that, like I will get more, that they could still underwrite it if I quit my job and do it full time, but then I will have to make larger down payment and basically the terms would be less favorable.

Host: And so what were the terms that you got? Can you break it down for us?

Guest: 10% down. They gave me like maybe 30k for the working capital and like the interest trust. It was kind of the standard for SBA at that time.

Host: And was there any seller financing?

Guest: No. So basically one of the parts of the story was that the owner was selling because he had health issues. So very serious health issues. So initially they were going to ask for seller financing, but I said, probably it's not a good idea because he has these health issues and that's why he's selling. And then they said, okay, maybe you just, you already gave us your house as a collateral on the loan, etc, so. Yeah, then they just waived that requirement of the seller note.

Host: Okay. Okay. And returning, Tony, to what drew you to this business. So you said in that B2B SaaS deal, like when you went and visited the business, you really felt like this would be really. This doesn't feel like the most natural fit for me to come in and buy and run this business. What about this business, this writing agency, ghostwriting, editing agency, agency. That, that is kind of a skill set that you felt comfortable with. You felt, you felt like you were qualified to run kind of a. A writing agency.

Guest: Yes, because basically my first degree was in linguistics and literature, just in Russia. But yeah, I even worked as an editor before in a traditional publishing house and I worked as a translator. So I, I was very much familiar with the space and that was the space I loved just as a lifestyle.

[39:01] Host: Oh, well, that's a key point. That's a really important point. I didn't realize that about you, that this was something that you had already actually worked in yourself years ago.

Guest: Yeah, it was very different. It wasn't about self publishing, etc. But at least I understood the type of people that are there and that, yes, there is A lot of. So the owner told me on one of the first calls that, yeah, you just have to deal with these authors who all think that they are the next John Rowling. I think that was one of the key insights into the market that, yeah, there are different names for this business model, which I wouldn't probably name right now, but I think this business model, when the author actually funds the whole publishing process, makes sense for this type of author because they kind of absorb the risks and the rewards. And the company actually published or edited books for some people who wrote Amazon bestsellers. But of course, most people didn't really end up becoming John Rowling.

Host: What is this phrase that the guy used that you're shy about saying?

Guest: No, he didn't use it. But basically there is a bad vibe about the term vanity press.

Host: Vanity press?

Guest: Yes.

Host: Okay, so that is a term. I didn't even realize that. Okay.

Guest: Yeah. And then like, some people consider it. So the vanity press was a term even like in the 70s when you actually had this, like, print companies who actually take money from the authors to publish their books. But now, when, with the rise of self publishing on Amazon, et cetera, you couldn't really say like, something is a vanity press because you know what you're buying. But I guess, yeah, there was a lot of discussion with the people who worked for the company in the recent two months about how we want to position ourselves. And nobody wants to end up on this list of companies that are considered vanity presses. So that's why I was afraid to say the word out loud. But, yeah, I think it describes the model pretty well.

Host: Okay, and are you personally. Do you see the business as that or are you. Did you. I mean, when you were first evaluating the business, did you see it as that or are you also resisting that characterization?

Guest: Well, I think when you take money from the author. As opposed to like buying the copyright and then like trying to market can always be called vanity press. But the thing is that is it unfair to the author or is there anything sketchy about it? If you just position yourself as a self publishing company, Like, it's a different narrative because it is the same as, like, sometimes you have venture funds, but you also have people who just do services for startups, for example. So in this case it's kind of similar and you actually provide service that actually brings value. It's not just that you take money for like marketing and then, like, you don't market. I think it's more in this picks and shovels space where there is a growing Industry and you provide services to the creator economy.

[43:11] Host: I love how you take everything back to Silicon Valley models of thinking. Now I'm understanding that the vanity press had a bad reputation or has a bad reputation because it is perceived to, to prey upon its clients, that they take money from these people who want to have a book and then really it doesn't kind of project doesn't do much or go anywhere. Does that sound right? Okay.

Guest: Yes.

Host: One other observation that I meant to say earlier when we were talking numbers is it sounds like the margins are pretty good. So if it's doing $600,000 a year and 200,000 or roughly 200,000 SDE, those are, you know, nice 30%, 30 plus percent margins. That must have been attractive.

Guest: Yes. And also. Well, I was actually like, not really. Like, I still think that like when there is, when the margins are already high, then probably the company's already lean and there isn't much to improve. So it wasn't really an attraction to me. But there was, yeah, one more good thing about it that the cash flow cycle was really good because the author could pay now and the contractors who do the actual editing or ghostwriting only get paid after the full project is delivered to the customer. So it was in a way bad for me because I also acquired some of the outstanding payments to contractors, but for some projects that were fully paid in 20. But overall, like the. Yeah, it is very, very, very, very good cash flow.

Host: Yeah, phenomenal. Yeah. Big, big order value. And it all comes in up front. And then you, you pay it down to the contractors only after, after delivering. That's great. And so how many full time. So give me, help me understand the, the people involved in the, in the business. So all the writers and editors are on contract. Right. And the owner was obviously an employee and then his wife was a kind of a book. Anyway, tell us how it worked.

[45:25] Guest: Yeah, so the owner was the only employee and it was an llc. So yeah, he was the CEO and like the only person officially in the business. And then there were 45 contractors who were paid mostly commissions on the, on the work. So his wife, I think she didn't have a salary. She was just helping him as a family member.

Host: Oh, great. A new expense that doesn't even show up in the books that you're going to have to pay.

Guest: Yeah. But I asked how many hours she spends per week and I think she said four. He said like, oh no, you only spend one hour a week. But it was part of the first conversations.

Host: So that's the Lay of the land in terms of people in the business, what did you. So now that we know the costs and, and the revenue, how did you envision, like, what, change or growth or whatever? How did you envision changing the way that cash is flowing through the business and out of the business once you took over? Because you're, you're going to, if nothing else, you're going to lose your primary salesman in the founder.

Guest: Yes. So I think the approach was like Napoleon said, we just start and then we'll see.

Host: Napoleon is allowed to say that the rest of us maybe have to have a little bit of a plan, but go ahead.

Guest: Yeah, well, I had a plan, but it was more of a high level plan. So I already knew that SBA requires cash flow projections, but they do not really check every assumption. So I kind of had an optimistic plan that I already knew probably wouldn't be true, the realistic plan and the pessimistic plan. So I presented the optimistic scenario to the sba. Then I didn't even fully calculate the realistic scenario, but I just kind of had a high level projection that like, okay, the business is profitable. I will give out less than half of it for the SBA loan and like, if there is any profit, so there should be 50% profit after that at least. So, like, if it did 200k and it was always growing, then like, probably I will still have maybe 100k left for the, for myself. It would not justify living in Silicon Valley, but it seems like low risk enough. And using that money, I can also pay a new salesperson, et cetera. So if I can hire another salesperson and still have it profitable, that's already a good deal. That's how I thought about it. Great.

[48:17] Host: So you were basically, in your mind, you had $100,000 to, to play with, to use, to allocate in a certain way, and you were going to put that toward a salesperson.

Guest: Yes.

Host: Okay, so tell us what has happened since acquisition?

Guest: So, several things happened. One thing was that, and that was also part of this high level understanding, but it still gave me some stress when it actually happened. One thing was that we did a calculation of accounts receivable minus accounts payable before the deal. And considering that most customers pay in advance, basically it was part of the contract that the owner would give me the difference, so they gave me additional 30k. But that was under the understanding that most of the accounts receivable will be paid and with not much effort, because that's already in these outstanding invoices. So what happened Was that actually this invoice, outstanding invoice sales to customers required a lot of chasing. So actually, yeah, it turned out that the owner actually spent a lot of time just chasing invoices from the existing customers. And, and it also made sense because basically people who go after a company with this weird website, usually these are people who have some issues getting published. Again, I'm talking about our current customers. I wouldn't say these are all the people, but there was a certain percentage of invoices where the author actually was in prison or was going to get in prison soon, or they just were so old that actually, for example, they couldn't get access to their own money or they just had issues paying online or they just sort of all kinds of issues like that. And that's why he was spending a lot of time on the phone with existing customers.

Host: But Tony, I have to interject. What about the beautiful cash cycle where the cash all comes in before any work is done?

Guest: Yes, but for this you need to actually get new sales in without the founder who did all the sales. So yeah, so the first part of the problem was that the actual invoices that were supposed to cover all of the outstanding payments to contractors that they didn't fit in time. Like when I need to pay the contractors. So for example, I need to pay 10k this month, but the 10k in upcoming invoices are only coming somewhere in January. So I had some reserve for that, but it was still kind of stressful and it was hard to explain. To the previous owner when we debated about certain details, etc. The other thing that happened was it was also part of the realistic plan that the new salesperson could not convert at the same rate as the previous owner. So yes, there were some sales in the first month. The first month was profitable, but partially because there were still all these previous sales still getting paid. Second month, she pretty much could not close much and considering she was on commission basis, it didn't make sense for her. So in the end she just found another job. So I had to repeat the experiment.

[52:30] Host: And who is this she?

Guest: Yeah, so basically, yeah, it was also one of the things that kind of got discovered a little bit late that when we made the deal, I already let the owner know that I will probably find another person without a Russian accent who will do the sales. And he suggested I given new responsibilities to one of their existing part time contractors who previously was doing a lot of customer service and who basically had a role of a director of publishing. And he wrote a number of things that she did in the company in the last year. And it seemed like a really good deal because she was also happy to work on commission. And I said yes. And then it turned out that this person was his daughter from previous marriage. But I mean, if I knew, I would probably still take the deal because it was like really good deal when you don't need to pay a salary to someone. Right. But there is always this risk that if it doesn't play out, the person can quit. Especially when they don't have the same type of connection with me as with they had with their father, obviously.

Host: Sure. So. So she goes for a month without really closing anything and then quits because she hasn't earned any money that month.

Guest: No, she actually closed a few deals. It just wasn't enough to basically, I don't. Again, like, we don't know, like. Well, the truth is. So she just said that like, oh, I found this really good opportunity and she basically worked in some lab before, so it was more of an academic career and she did this thing on the side. But the sales job cannot be done part time. You have to be on the phone. So yeah, so basically she just found a job that wasn't related to sales or publishing and that was what, what fit her education.

[54:47] Host: So now you're left without a salesperson.

Guest: Well, that was kind of easy to fix because there was another person in the company who really wanted to do sales. And yeah, basically it was a smooth transition, but it still takes like, I knew that it would still take some ramping up time because the new person would know the product. But still, she worked as a chief editor before, not as a salesperson.

Host: I'm surprised that an editor would want to work in sales. I feel like those two types of people are not the same type of person.

Guest: Well, in our case it's not really sales sales, it's more like consultative sales. And I think I have understanding of the profile here because I started in Google Ads. Sales that were also not really sales but more like consultative sales. And I think it's a different personality than when you actually go after big checks from Oracle or like, I mean from these enterprise customers. When you do consumer sales, it's very much like customer service.

Host: Mm. Okay. And so does that take us up to the present? Is she, is she your primary salesperson now?

Guest: Yes, and she has the title of the executive director,

Host: so she's. Okay, so she's also the general manager or the person running the entire business?

Guest: Well, I always knew like I needed like if previously it was the owner doing all the sales. It was part of the value proposition as well. It just doesn't scale. So I knew if I have to replace him with someone, then this person should have a fancy title at least.

Host: Okay, so, so how, how long has she been doing the sales and being the. What did you say? The executive chairman. The executive director. Yes, director.

Guest: So she started on June. No, on July 1st. So basically five weeks. Yeah. From now.

[57:01] Host: And you acquired the business in. When was it? Was it May?

Guest: I acquired it on April 29th. So basically like then there was a weekend. So May 1st, let's say yes.

Host: Okay. Okay. And what with all of this kind of sales situation happening, what, what is the, what has it done to the numbers? What does the business look like today, five, or I should say three months after you've acquired it?

Guest: So cash wise, it's losing money. But that was expected because there were all these old payments to contractors. So it has lost a lot of money, cash wise. What's important is kind of the CAC to ltv. So basically the customer acquisition cost and how much money the customers are paying. So in that respect, it's like for the last month it was slightly positive, meaning that I reduced the marketing spend a lot by optimizing their existing ads campaign. So now we have the same number and quality of leads two times cheaper. And the sales dropped as well. But there are some sales, they are very unstable right now, but basically they barely cover the marketing spend for the last months.

Host: Is this the executive director? Is she improving week over week in terms of her sales acumen?

Guest: I hope so.

Host: Are you training her? Because you had said earlier that you felt comfortable and that you. Indeed one of the things that you thought you saw yourself doing in this business is training salespeople and that you'd scale the sales function over time.

Guest: Yeah. So basically I do not kind of coach her every day. And that was one of the issues of the business as well, that previously the company worked pretty much like a family, even though it had all the contractors. And I'm more data driven and looking into systems, et cetera. And I had a lot of disagreements with basically people who were doing kind of some management work previously. So there were kind of the old lieutenants that the previous owner had. So they were still employed as contractors, but they actually did a lot of coordination work and basically management. So one of them left in the first month I took over the company. Then the head of sales, his daughter left as well. So I had three left and they all had some debates. With me. So as I said, this kind of industry, it has very different people from those working in tech and they are very emotional, they do not really like numbers, etc. So yeah, I think we had a lot of cultural issues that are also preventing me from actually building system around some things. But there is already a lot of automation that I introduced that enables scaling if needed. We have a toll free number, we have workspace account, I have all the call recordings. Like there is call routing, etc. And there is calendly to book the things. And all of that didn't exist when the previous owner, he was just like picking up the phone or just like calling someone after they submitted the form. But yeah, but he did that and it worked. Now everything is right, but there is no money.

[1:01:08] Host: Right, but you're laying a foundation and it costs money to lay a foundation. And yeah, this is the, the J curve, right where you, you, you lose money as you correct the unscaling aspects of the, of the pre. Under that existed under previous ownership. Lay the foundation to hopefully meet and then exceed what, what the revenue was doing under. Under the previous owner. Very interesting. Well, Tony, I'm having a hard time intuiting how you feel about things because your tone of voice is sunny and smiling, but it sounds like it's been really hard. So tell me directly how do you feel about this project, this acquisition?

Guest: I think I'm just kind of motivated by stress.

Host: Okay. All right.

Guest: Yeah, no, I think I was really stressed before, but I also, I guess it is kind of part of the adventure to have all these troubles. It just doesn't feel like it when you just have to see it and look into the numbers and then explain it. And that part I didn't like, but I think now it. Yeah, I feel like I don't feel good about it, but I feel better than a month ago.

Host: Okay. And you are employed elsewhere, although not at Google. So you. So, so tell, tell us that situation and, and how that you know, obviously that you still have the security of a paycheck.

Guest: Yes. So initially when I did the calculation for the SBA loan, I thought okay, it's, it's kind of a small deal. And then if this thing completely flips down, I can still pay out the loan out of my salary. That was my initial mantra. So yeah, basically I did all the documentation for the SBA loan. I was keeping my job by then. Once the deal closed, I gave my notice at Google and the first month was still good money wise. So yeah, I just gave my notice and thought, okay, I have some Runway to try and experiment for at least a few months. But at the same time I know that financially when I already know that the profit will be low and I still approach it more as a growth opportunity rather than something that is stable. And so there would be ups and downs. I was just interviewing with some startups very passively I think. Yeah, like I, it's just like going after all of it. So I think career wise, I always wanted to try to be in a high growth startup for a while. And yes, so basically when the deal was closing, I just randomly went to one of the interviews with a fully remote startup and I kind of clicked with the hiring manager who also left since then. And yeah, and yeah, it was kind of a good offer. It also kind of fit my target statement in terms of what I wanted in a tech career for the next couple of years. And yeah, basically I joined a series C startup in California that was remote and that would still kind of keep me in the tech space.

[1:05:06] Host: So starting a new job and running a new business. So how do your hours break down? How many hours a week are you putting into Right My Wrongs, the business you acquired and then how many hours are you giving your new. Your new job?

Guest: So the new job is 40 hours a week. But I didn't start there right away, so I already had the offer like maybe a week after I left Google, the final offer. But I negotiated that I would start there in three weeks and also have a week of vacation. So the first month after the acquisition I was able to spend as much time as needed on the business and it didn't feel great. I pretty much felt locked in there. So actually when I. So I think I was still spending less than 40 hours a week because I'm generally lazy and unproductive. And that was also one of the reasons why I wants it to like do it on the side because I know that I'm never 100% focused on anything. And like if I have eight hours on a day to work on something, I will still spend one hour in the end of the day when I'm like feeling that I already need to go to sleep. Yeah, I think like most people in tech are procrastinators and then yeah, and then when I started I am in a product management role. So it's not the same as, it's not the same as on one hand being on the calls all the time when you just have to be on the calls to close sales. And it's not like Software engineering where you need a lot of uninterrupted time for building things. So I'm not sure but how it goes, but so far it's, it's manageable and it was a good distraction from all these unfancy troubles in the business.

[1:07:16] Host: And how much time are you giving the business now? Right my wrongs.

Guest: So maybe like one or two hours per day during the weekdays and then like the new things that I'm trying to do, I usually do them on the weekends. So I would say. And also I procrastinate a lot. So I would say it's, it's probably 10 hours per week or 12 hours per week.

Host: Okay. Okay. And is this something that you're seeing other people in Silicon Valley? Do any of your colleagues or friends, are they doing this? Were you influenced by them? Did you tell them that you're buying a business and did they get excited about it or understand it or think you were crazy or what?

Guest: The first time I met other acquisition entrepreneurs was in the acquisition lab and there I think in my cohort I was the only person from the Bay Area. So when I left Google, in my goodbye email I wrote that I want to take a stab at entrepreneurship or something like that. And yeah, some people were asking and I told them that I acquired a business and yeah, I think they were kind of interested but it wasn't a big deal. I think everybody thought that I start a normal tech startup and I didn't give too much details.

Host: Yeah. So there's nothing here where it's like this buy then build book is being read widely at Google or something. You are an odd duck doing this among your cohort.

[1:09:04] Guest: No. Yeah, just because the calculations that are provided in the buy then build is like okay, you put 100k down, you buy 1 million business, then like then you grow it like to maybe 200k in profit etc. But like all of this is below the junior level salary at Google. So it's just not interesting for most techies.

Host: If somebody else wants to, maybe somebody from the tech industry or elsewhere wants to get your opinion or reach out, what's the best way to do that?

Guest: They can reach out at tonyrightmyrongs co if they are interested in publishing a book for example. And yeah, that would. And they could also check out the website. That would be nice. It's rightmywrongs co

Host: write W R I T E. I'll put a link in the show Notes to that. Yes, really interesting undertaking by you Tony. Thanks a lot for coming on acquiring minds and sharing it with us.

Guest: Thank you, Sam.